Executive Briefings

The field of companies offering rapid delivery of items ordered online is getting awfully crowded.

Among the latest entrants is Uber Corner Store, the popular ride-sharing venture’s attempt to grab a piece of the retail delivery business. Launching in parts of Washington, D.C., Uber Corner Store will pick up and deliver from a list of 100 items that are commonly found in drug and grocery stores. (Or not so commonly found – $5 will get you a three-pack of Uber Ping Pong balls.) The company is relying on its same fleet of independently contracted drivers to make the deliveries, which involve no additional charge over the price of the items.

The business models of those players vary, with Amazon drawing on its own extensive inventory, and most of the others obtaining product from existing retailers. What they have in common is some form of expedited or same-day service, to feed consumers’ growing appetite for immediate gratification.

All face the same tough question: Can they make a profit? Same-day delivery is brutally expensive to provide, if you don’t have an infrastructure already in place. It’s one thing for FedEx or UPS to deploy an existing network to offer a premium service – quite another for a newcomer to pay for the vehicles and drivers to match it. Especially if the service isn’t tacking on a high delivery charge to cover its costs.

Uber, with its fleet of drivers already in place, has both the funding and access to make local delivery work. But the ultimate key to success is “being able to have a timely service that you can make money on,” says Chris Jones, executive vice president of marketing and services with Descartes Systems Group Inc. “Otherwise you won’t survive.”

Jones doesn’t believe all of these services will necessarily go head to head. Amazon, with its nationwide collection of regional D.C.s, doesn’t play in the same court as a small, asset-light provider like Uber Corner Store, he says. Still, there’s only so much room on city streets for those armies of vans, town cars and Priuses. As with any new business opportunity, an eventual shakeout is inevitable.

Just how soon is another question. In Jones’s opinion, the game has just begun. “We are just scratching the surface of what’s going on,” he says. According to Forrester Research, Inc., U.S. online retail sales accounted for nearly 9 percent of the $3.2tr retail market in 2013, and are expected to grow at a compound annual growth rate of nearly 10 percent through 2018. In the U.K., online sales will represent a projected 15 percent of the economy by 2017.

Also likely to jump into the sector are the big retailers themselves, many of whom will rely on dedicated contract carriage to deliver product to the consumer’s door in branded trucks. Jones says the trend is already evident in the U.K., where home delivery services for groceries and other consumer items are more entrenched. In the age of the omnichannel, no retailer can afford to stay out of the fray.

There’s plenty of venture capital in the same-day market to keep it going for the next couple of years, Jones believes. But investors won’t wait indefinitely for a return on their money. Delivery services will have to consider creative pricing structures in order to make themselves economically viable. For example, a consumer might agree to pay more for a narrower delivery window, or even a specific time. (One of Descartes’ retail clients described its customers as “time-poor and money-rich,” says Jones.) Others will be happy to wait a couple more hours, or perhaps an extra day, to save a few dollars on the delivery price.

Smaller delivery ventures might also achieve market power by banding together. Jones says they can cobble together geographic offerings to match those of nationwide entities. Then there are the technology providers such as Grand Junction, which markets a software platform to help manage multiple local courier services.

Same-day delivery will be further restricted by geography. It won’t work outside densely populated areas. That’s why Amazon, Google and eBay have all launched their ventures in a handful of cities. Even beyond considerations of profit, the sheer distance between remote points prevents sellers from reaching buyers within 24 hours in many parts of the country. “You can’t defeat the law of physics,” says Jones.

Some observers of the same-day market have advanced the theory that profit isn’t the point. Amazon, after all, has become notorious for its willingness to post red ink year after year, as it builds out an unassailable infrastructure. Others posit that Uber and its rivals are using delivery as a loss leader, in order to lock in customers for their core services. Grabbing market share becomes more important than turning a profit.

We’ve heard it all before. In fact, this explosion of upstarts is starting to look like the late 1990s, when countless online merchants and delivery services sprang up to offer home delivery of every imaginable consumer item. (Remember Webvan?) Most went under with the bursting of the dot-com bubble of 2000.

With all these new services vying for the consumer’s dollar, we might very well be in for another crash. Jones believes this latest batch of competitors has more staying power than its predecessors, but only time will tell. Until then, we can enjoy watching a lot of creative entrepreneurs slug it out.

Among the latest entrants is Uber Corner Store, the popular ride-sharing venture’s attempt to grab a piece of the retail delivery business. Launching in parts of Washington, D.C., Uber Corner Store will pick up and deliver from a list of 100 items that are commonly found in drug and grocery stores. (Or not so commonly found – $5 will get you a three-pack of Uber Ping Pong balls.) The company is relying on its same fleet of independently contracted drivers to make the deliveries, which involve no additional charge over the price of the items.

The business models of those players vary, with Amazon drawing on its own extensive inventory, and most of the others obtaining product from existing retailers. What they have in common is some form of expedited or same-day service, to feed consumers’ growing appetite for immediate gratification.

All face the same tough question: Can they make a profit? Same-day delivery is brutally expensive to provide, if you don’t have an infrastructure already in place. It’s one thing for FedEx or UPS to deploy an existing network to offer a premium service – quite another for a newcomer to pay for the vehicles and drivers to match it. Especially if the service isn’t tacking on a high delivery charge to cover its costs.

Uber, with its fleet of drivers already in place, has both the funding and access to make local delivery work. But the ultimate key to success is “being able to have a timely service that you can make money on,” says Chris Jones, executive vice president of marketing and services with Descartes Systems Group Inc. “Otherwise you won’t survive.”

Jones doesn’t believe all of these services will necessarily go head to head. Amazon, with its nationwide collection of regional D.C.s, doesn’t play in the same court as a small, asset-light provider like Uber Corner Store, he says. Still, there’s only so much room on city streets for those armies of vans, town cars and Priuses. As with any new business opportunity, an eventual shakeout is inevitable.

Just how soon is another question. In Jones’s opinion, the game has just begun. “We are just scratching the surface of what’s going on,” he says. According to Forrester Research, Inc., U.S. online retail sales accounted for nearly 9 percent of the $3.2tr retail market in 2013, and are expected to grow at a compound annual growth rate of nearly 10 percent through 2018. In the U.K., online sales will represent a projected 15 percent of the economy by 2017.

Also likely to jump into the sector are the big retailers themselves, many of whom will rely on dedicated contract carriage to deliver product to the consumer’s door in branded trucks. Jones says the trend is already evident in the U.K., where home delivery services for groceries and other consumer items are more entrenched. In the age of the omnichannel, no retailer can afford to stay out of the fray.

There’s plenty of venture capital in the same-day market to keep it going for the next couple of years, Jones believes. But investors won’t wait indefinitely for a return on their money. Delivery services will have to consider creative pricing structures in order to make themselves economically viable. For example, a consumer might agree to pay more for a narrower delivery window, or even a specific time. (One of Descartes’ retail clients described its customers as “time-poor and money-rich,” says Jones.) Others will be happy to wait a couple more hours, or perhaps an extra day, to save a few dollars on the delivery price.

Smaller delivery ventures might also achieve market power by banding together. Jones says they can cobble together geographic offerings to match those of nationwide entities. Then there are the technology providers such as Grand Junction, which markets a software platform to help manage multiple local courier services.

Same-day delivery will be further restricted by geography. It won’t work outside densely populated areas. That’s why Amazon, Google and eBay have all launched their ventures in a handful of cities. Even beyond considerations of profit, the sheer distance between remote points prevents sellers from reaching buyers within 24 hours in many parts of the country. “You can’t defeat the law of physics,” says Jones.

Some observers of the same-day market have advanced the theory that profit isn’t the point. Amazon, after all, has become notorious for its willingness to post red ink year after year, as it builds out an unassailable infrastructure. Others posit that Uber and its rivals are using delivery as a loss leader, in order to lock in customers for their core services. Grabbing market share becomes more important than turning a profit.

We’ve heard it all before. In fact, this explosion of upstarts is starting to look like the late 1990s, when countless online merchants and delivery services sprang up to offer home delivery of every imaginable consumer item. (Remember Webvan?) Most went under with the bursting of the dot-com bubble of 2000.

With all these new services vying for the consumer’s dollar, we might very well be in for another crash. Jones believes this latest batch of competitors has more staying power than its predecessors, but only time will tell. Until then, we can enjoy watching a lot of creative entrepreneurs slug it out.